The Good Earth

China’s agriculture investments in Kazakhstan and Laos have faced very different political reactions.

If you’re involved in agribusiness in China one statistic matters more than all others. The country has to feed 20% of the world’s population on 7% of its arable land. And that land bank is shrinking, rezoning approvals rose from 40,000 to 125,000 hectares between 2003 and 2009 according to the Ministry of Land & Resources.

China is dealing with that by “going out,” with an assortment of private sector initiatives and a US$ 4.1 billion fund to invest in agricultural projects overseas. If properly executed, these initiatives can bring Chinese cash and agricultural know-how needed by smaller agricultural-oriented neighbors. As is clearly seen from the case of Laos.

The winds of trade

Chinese agri-investment however has faced less opposition in Laos, where China recently overtook Thailand as the largest single foreign investor. Higher prices in China than domestically or in Thailand make it an attractive market for Laotian farmers. The provincial Industry and Commerce Department in Laos’ northerly Bokeo province has reported that it expects to ship a record 30,000 tons of rice to China in 2010, compared to 20,000 tons shipped to Thailand, the country’s traditional export market.

Aid officials and EU diplomats in Laos speak of an influx of Chinese food growers, farm managers and food processing companies, as Chinese investment in Laos has almost doubled from $1.1 billion in 2007. Very little of this money comes from major state projects, much of the investment comes from small-scale Chinese food companies which use family ties to exploit cheaper land and labor resources in Laos to produce food for China, where prices are higher. Mid- and large-sized companies meanwhile typically deal with village and provincial governments in Laos: village co-operatives produce crops for Chinese buyers in return for seeds, machinery and technical advice.

Sweetcorn is also exported to China through the border checkpoint in Sing district, Luang Namtha province. Farmers are switching from growing sweetcorn to producing watermelons and pumpkins for export to China. Other crops under consideration include Job’s tear, sesame and legumes, said Mr Somchin. Laos also has considerable pools of strategic resources. Chinese hold 50,000 hectares of rubber plantations, a resource which is becoming an increasingly important import for China’s rapidly expanding auto industry.

More than just agriculture

While there are obvious benefits for Laotian farmers in terms of technical knowledge transfer there are far greater benefits for China’s commercial presence in the country, which has extended to forestry (legal and illegal logging) as well as mining and hydropower. Market leader Sinohydro has advised on several dam projects from an office in Vientiane, which produce electricity which is then exported to Thailand.

Chinese export-focused businesses have also reaped benefits: manufacturers have shifted some operations southwards across the border to exploit the preferential treatment extended to the EU and US thanks to Laos’ leastdeveloped country status. State-owned Yunnan Construction controversially built the stadiums Laos needs to host the Southeast Asian Games – a loan from the China Development Bank got the firm the stadium contract in exchange for a lease on the land on which it will build a high-rise quarter, called Chinatown. Chinese construction firms and investors have also been active on projects such as the Talat Sao mall, built by Chinese investors and crammed with Chinese consumer goods such as Lenovo computers and Konka TVs.

There are good reasons for investing in Laos. Crucially, the Communistrun state, unlike Thai land, al lows foreigners to establish 100% foreign owned companies, a carrot for firms seeking a Southeast Asian base. Also, WTO membership and a railway link to Thailand are useful for foreign investors. Infrastructure however remains primitive compared to China or Thailand. China may help in that regard. The government is promising a rail-line connecting Yunnan’s capital of Kunming to Laos and Thai land. This would ultimately alter Laos’ longtime mooring to Vietnam. For years Laos lived in the shadow of its eastern neighbor Vietnam, which frequently dictated Vientiane’s position, without guiding it to the kind of economic prosperity it has itself enjoyed.

Growing Global

Asiano perations will be a proving ground for emerging Chinese agr ibusiness conglomerates l ike China Nat ional Cereals, Oi ls and Foodstuffs Corporation (COFCO) which is attempting to remake itself in the mould of the world’s largest agricultural commodities firms such as Minnesotabased Cargill which has extensive interests across Asia.

In its previous incarnation as a monopoly trader COFCO had concentrated on developed Western markets, but now the firm is about to indirectly expand its footprint in southeast Asia: in September launched a US$ 1 billion agricultural investment fund with three partners, one of them agricultural commodities giant Louis Dreyfus Corporation, which has significant plantations in Laos.

While a hunger for land among industrial and real estate developers suggests there’s no end in sight to China’s food security issues there are obstacles to farming abroad, such as getting the produce back on lousy infrastructure, and overcoming the difficulties of local politics. Yet if China can learn how to assuage local fears, it has enough money and agricultural expertise to offer sizable benefits to developing countries like Laos. In any case to feed itself China may find it has no option but to farm next door.

While Laos has done quite well from Chinese agriculture investments, Kazakhstan is a different story. Kazakhstan’s relatively sparse population (20 million) on a vast acreage (it’s the 9th largest country in the world) makes the Central Asian state an ideal exporter of food. China is currently cooperating with the Kazakh government to grow soya beans on almost 15,000 hectares in southern Kazakhstan. If the crop proves successful the planting will eventually cover one million hectares according to Kazakh media reports.

Beijing has a lot of leverage, given it has in the past two years given Kazakhstan US$ 10 billion in soft loans to help it repair its busted banking system as well as its infrastructure. But Kazakh officials have been nervous in discussing the project because of tension in the country over what’s perceived as a Chinese land-grab. Protestors, among them the former Kazakh ambassador to China, Murat Auezov, have demanded to know who’ll farm the land: inward Chinese migration is a sensitive issue in Kazakhstan.

The country’s deputy agricultural minister Arman Yevniev has attempted to calm the waters by pledging the soy project will be operated by locals – land will not be purchased or leased by Chinese investors, he said. A lack of clarity on the project from both sides seems to fanning the flames. Other foreign investors have after all taken stakes in Kazakhstan, including Russian and German firms which have both taken stakes in food companies that remains Kazakhstan’s leading exporters of wheat and flour, shipping 27 million tons of the latter in 2009.